Sri Lanka ends 2017 year with 7.1-pct inflation

Dec 29, 2017 16:21 PM GMT+0530 | 0 Comment(s)

ECONOMYNEXT - Sri Lanka's ended the year generating 7.1 percent inflation in 2017 as the effects of a currency collapse over two years pushed up the price structure of the economy despite tight monetary policy and slowing credit.

In the month of December the Colombo Consumer Price Index grew 0.6 percent to 122.9 points.

The central bank overshot its target of mid-single digit inflation in 2017.

Central Bank Governor Indrajit Coomaraswamy told reporters Thursday that the central bank expects inflation to reach to mid-single digits by the first quarter of 2018.

Since January 2015, when unchecked deficit spending by then Finance Minister Ravi Karunanayake was accommodated by an unprecedented bout of money printing and liquidity releases by then Governor Arjuna.

From mid-2015 the rupee has collapsed from 131.04 to the US dollar to 153.76 by November 2017.

Some of the currency fall in 2017 was deliberate due to 1980s-style inflationist crawling peg which attempts to target a real effective exchange rate and give temporary profits to export firms by denying a living wage to workers.

Currency depreciation also give other subsidies to exporters because petroleum, power or water prices are not market priced monthly in Sri Lanka.

In the past three years the Colombo Consumer Price Index had inflated by 17.04 percent, climbing from 105 in December 2015 to 122.9 by December 2017. All inflation is monetary though authoriies attempt to blame taxes, drought, supply shortfalls and a host of other phenomena, provided they are not monetary in nature.

Becuase Sri Lanka has a de facto peg with the US dollar any inflation created by the Fed in the form of higher commodity prices also come to Sri Lanka. (Colombo/Dec29/2017)